Rattner's Quadrangle Under Investigation In Kickback Scam

Car czar Steve Rattner’s former firm, Quadrangle, is no longer just a cooperating witness in the New York retirement fund kickback scandal.

According to the New York City comptroller, the firm provided inaccurate information to the city about the finder’s fees it paid to a now-indicted placement agent. The comptroller has now launched an investigation to determine whether Quadrangle intentionally misled it:

WSJ: The New York City comptroller said Tuesday it is conducting an internal investigation into whether private-equity firm Quadrangle Group “intentionally misled or deceived” the city pension funds by failing to disclose paying finder fees to the firm of the now-indicted political adviser Hank Morris, a comptroller spokesman said.

Quadrangle paid fees to Mr. Morris’s former employer, Searle & Co., in 2005 for an $85 million investment in the New York City Pension Funds, according to a lawyer for Searle.

But in disclosures to the pension fund, Quadrangle didn’t mention retaining or paying fees to Searle, according to a spokesman for the New York City comptroller, William Thompson, who oversees the fund. Rather, Quadrangle told the pension fund it used two other placement agents — companies that help investment firms secure business from pensions, endowments and foundations.

Quadrangle’s reaction to this revelation was a play for time:

A spokesman for Quadrangle said: “This came as a complete surprise. We plan to gather all the facts and intend to clear up the issue as soon as possible.”

Importantly, the New York City comptroller is not a prosecutor or regulator, so this does not carry the same weight as a regulatory investigation. But if the comptroller concludes that Quadrangle deceived it, the SEC and/or Andrew Cuomo might well jump into the act.

As described in detail here, Steve Rattner was personally involved in several of Quadrangle’s meetings and transactions with the indicted conspirators in the case. So if Cuomo or the SEC get involved, he would likely be dragged back into it.

Thus far, Rattner has not commented on his and Quadrangle’s behaviour in this case, despite an SEC complaint that created the appearance of impropriety. If the investigation escalates, he will likely have to do so.

Quadrangle, meanwhile, has been put in a bad spot. The firm is trying to persuade big investors to stick with it (they have the option not to do so now that Steve Rattner is gone).

NYT: The deadline for [the investors] decision is Friday, according to four people familiar with the matter. For Quadrangle, the stakes are high. If its investors balk, the amount of fees that it collects annually on its funds would fall to about $19 million, from $35 million, according to a Quadrangle investor. Mr. Rattner’s firm also would lose its ability to make investments in new companies…

The NYT has more on the original scandal, in which Rattner was told he wouldn’t get any NY pension fund money unless he paid a particular placement agent (who has since been indicted).

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